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  • Gold price attracts some haven flows in the wake of geopolitical tensions in the Middle East.
  • Hawkish FOMC minutes remain supportive of elevated US bond yields and cap the upside.
  • A sustained move beyond the 50-day SMA should pave the way for a further positive move. 

Gold price (XAU/USD) attracts some buyers for the sixth straight day on Thursday, albeit lacks follow-through and remains below the 50-day Simple Moving Average (SMA) heading into the European session. The minutes of the January FOMC meeting reaffirmed market expectations that the Federal Reserve (Fed) will keep interest rates higher for longer amid concerns over sticky inflation and the still-resilient US economy. This remains supportive of elevated US Treasury bond yields and turns out to be a key factor acting as a headwind for the non-yielding yellow metal.

Apart from this, a generally positive tone around the equity markets further contributes to capping the upside for the safe-haven Gold price. The downside, however, remains cushioned in the wake of geopolitical tensions stemming from conflicts in the Middle East, which tends to benefit the safe-haven precious metal. Moreover, the US Dollar (USD), so far, has struggled to gain any meaningful traction despite the Fed’s hawkish outlook and offers support to the commodity. The mixed fundamental backdrop, however, warrants caution before placing bullish bets around the XAU/USD. 

Daily Digest Market Movers: Gold price benefits from geopolitical tensions, upside remains capped

  • The recent attacks by Yemen’s Houthi rebels on commercial vessels in the Red Sea and Bab al-Mandab strait stoke worries about a further escalation of military action in the Middle East, underpinning the safe-haven Gold price.
  • The US Central Command said two anti-ship ballistic missiles were launched from the Iranian-backed Houthi terrorist group, which claims to support Palestinian civilians amid Israel’s retaliatory military campaign in the Gaza Strip.
  • Fighting between Israel and Hamas has shown no sign of abating despite diplomatic efforts by several countries, with the former warning of a potential ground invasion of Rafah where more than 1.5 million Palestinians are sheltering.
  • The US Dollar languishes near its lowest level in more than two weeks and lends additional support to the precious metal, though hawkish-sounding FOMC meeting minutes keep a lid on any meaningful appreciating move.
  • The January FOMC meeting minutes revealed that policymakers agreed that they needed greater confidence in falling inflation before considering cutting rates and reinforced expectations that the Fed will keep rates higher for longer.
  • Market participants pushed back expectations on when the Fed will begin cutting rates to June, which, along with a weaker 20-year bond auction, push the yield on long-term US Treasury bonds higher across the board.
  • The yield on the benchmark 10-year US government bond advanced to its highest level since November 30, which helps limit the downside for the Greenback and contributes to capping the non-yielding yellow metal.
  • Traders now look to the US economic docket – featuring the usual Weekly Initial Jobless Claims, the flash PMI prints and Existing Home Sales data – for some impetus ahead of Fed Governor Philip Jefferson’s speech.

Technical Analysis: Gold price nees to break through 50-day SMA for bulls to seize near-term control

From a technical perspective, bulls need to wait for sustained strength and acceptance above the 50-day SMA before positioning for any further gains. With oscillators on the daily chart just starting to gain positive traction, the Gold price might then accelerate the momentum towards an intermediate hurdle near the $2,044-2,045 region en route to the $2,065 supply zone.

On the flip side, the $2,020 area now seems to protect the immediate downside ahead of the 100-day SMA, currently pegged near just below the $2,000 psychological mark. Some follow-through selling will expose the monthly low, around the $1,984 region, before the Gold price eventually drops to challenge the very important 200-day SMA support near the $1,966-1,965 zone.

US Dollar price this week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.38% -0.22% 0.05% -0.21% 0.19% -0.84% -0.19%
EUR 0.39%   0.16% 0.44% 0.17% 0.58% -0.45% 0.19%
GBP 0.22% -0.15%   0.27% 0.01% 0.42% -0.62% 0.01%
CAD -0.05% -0.43% -0.27%   -0.26% 0.15% -0.89% -0.25%
AUD 0.21% -0.16% -0.01% 0.26%   0.41% -0.63% 0.02%
JPY -0.19% -0.57% -0.40% -0.15% -0.41%   -1.04% -0.39%
NZD 0.84% 0.46% 0.61% 0.89% 0.62% 1.02%   0.64%
CHF 0.21% -0.17% -0.02% 0.26% -0.01% 0.39% -0.63%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

US Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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